ECON 1B03- Midterm Exam Guide - Comprehensive Notes for the exam ( 68 pages long!)

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Module #53 - 13. 7 consumer theory: how price and. How changes in income affect a consumer"s choice. An increase in income shifts the budget constraint outward. The consumer is able to choose a better combination of goods on a higher indifference curve. In this case, the way we drew it, the increase in income led to an increase in consumption of both goods. We could have drawn the new indifference curve differently so the optimal bundle would be different the optimal bundle would be different. How changes in prices affect a consumer"s choices. Changes in the prices of goods will also change the bc and the optimal bundle will change. The budget line will rotate out along the basketball ticket axis. The way we drew these indifference curves, mickey buys fewer hockey tickets and more basketball tickets. Two goods with straight-line indifference curves are perfect substitutes.